UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________.
Commission File No.: 0-23434
HIRSCH INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-2230715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Wireless Boulevard, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 436-7100
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 9, 2002.
Class of Number of
Common Equity Shares
------------- ------
Class A Common Stock, 6,120,611
par value $.01
Class B Common Stock, 2,668,139
par value $.01
HIRSCH INTERNATIONAL CORP. and SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - July 31, 2002 and January 31,
2002
Condensed Consolidated Statements of Operations for the Six and Three
Months Ended July 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended July 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Exhibit Index
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, January 31,
2002 2002
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,693,000 $ 3,121,000
Accounts receivable, net 7,329,000 7,509,000
Inventories, net (Note 2) 6,667,000 12,664,000
Prepaid and refundable income taxes 2,965,000 6,932,000
Other current assets 509,000 324,000
Net assets of discontinued operations (Note 4) 1,536,000 3,420,000
----------- -----------
Total current assets 27,699,000 33,970,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 2,994,000 3,515,000
OTHER ASSETS 840,000 794,000
----------- -----------
TOTAL ASSETS $31,533,000 $38,279,000
=========== ===========
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, January 31,
2002 2002
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable $ 1,520,000 $ 2,185,000
Accounts payable and accrued expenses (Note 3) 8,660,000 10,088,000
Other 211,000 202,000
------------ ------------
Total current liabilities 10,391,000 12,475,000
Capitalized lease obligations, less
current portion 1,593,000 1,642,000
Deferred gain on sale of building 907,000 966,000
------------ ------------
Total liabilities 12,891,000 15,083,000
------------ ------------
MINORITY INTEREST 1,902,000 1,737,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized:
1,000,000 shares; issued: none -- --
Class A common stock, $.01 par value; authorized:
20,000,000 shares, issued : 6,815,000 shares 68,000 68,000
Class B common stock, $.01 par value; authorized:
3,000,000 shares, outstanding: 2,668,000 shares 27,000 27,000
Additional paid-in capital 41,397,000 41,397,000
Retained earnings (deficit) (23,226,000) (18,275,000)
Accumulated other comprehensive income (loss) 76,000 (156,000)
Treasury stock, at cost; 695,000 shares (1,602,000) (1,602,000)
------------ ------------
Total stockholders' equity 16,740,000 21,459,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,533,000 $ 38,279,000
============ ============
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
July 31, July 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET SALES $ 27,532,000 $ 28,338,000 $ 13,772,000 $ 13,389,000
COST OF SALES 16,913,000 17,827,000 8,590,000 8,825,000
------------ ------------ ------------ ------------
GROSS PROFIT 10,619,000 10,511,000 5,182,000 4,564,000
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 10,896,000 15,220,000 5,275,000 7,616,000
------------ ------------ ------------ ------------
OPERATING LOSS (277,000) (4,709,000) (93,000) (3,052,000)
OTHER EXPENSE (INCOME)
Interest expense 129,000 111,000 69,000 65,000
Other expense (income) (8,000) (626,000) (14,000) (203,000)
------------ ------------ ------------ ------------
Total other expense (income) 121,000 (515,000) 55,000 (138,000)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT),
MINORITY INTEREST IN NET EARNINGS
OF CONSOLIDATED SUBSIDIARY
AND DISCONTINUED OPERATIONS (398,000) (4,194,000) (148,000) (2,914,000)
INCOME TAX PROVISION (BENEFIT) 389,000 (198,000) 195,000 (114,000)
MINORITY INTEREST IN NET EARNINGS (LOSS)
OF CONSOLIDATED SUBSIDIARY (Note 1) 165,000 24,000 91,000 (7,000)
------------ ------------ ------------ ------------
LOSS FROM CONTINUINING OPERATIONS (952,000) (4,020,000) (434,000) (2,793,000)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (4,000,000) 235,000 0 (28,000)
------------ ------------ ------------ ------------
NET LOSS ($ 4,952,000) ($ 3,785,000) ($ 434,000) ($ 2,821,000)
============ ============ ============ ============
LOSS PER SHARE BASIC AND DILUTED
Loss from continuining operations ($ 0.11) ($ 0.45) ($ 0.05) ($ 0.31)
Income (Loss) from discontinued operations (0.46) 0.03 (0.00) (0.01)
------------ ------------ ------------ ------------
LOSS PER SHARE ($ 0.56) ($ 0.42) ($ 0.05) ($ 0.32)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
IN THE CALCULATION OF LOSS PER SHARE
Basic and Diluted 8,788,750 8,967,000 8,788,750 8,939,000
============ ============ ============ ============
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 31,
----------------------------------------------
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 4,952,000) ($ 3,785,000)
Adjustments to reconcile net loss to net cash
provided by (used in)operating activities:
Depreciation and amortization 521,000 1,294,000
Recognized Gain on Sale of Building (60,000) (50,000)
Provision for reserves (147,000) 715,000
Minority interest 165,000 24,000
Changes in assets and liabilities:
Accounts receivable (267,000) (177,000)
Net investment in sales-type leases (1,321,000) (5,667,000)
Inventories 6,839,000 2,596,000
Prepaid taxes 3,981,000 695,000
Other assets (338,000) (440,000)
Trade acceptances payable (664,000) (1,630,000)
Accounts payable and accrued expenses 1,861,000 (1,068,000)
---------------- ----------------
Net cash provided by (used in)
operating activities 5,618,000 (7,493,000)
---------------- ----------------
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 31,
--------------------------
2002 2001
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 218,000) ($ 389,000)
Proceeds from the Sale of the Building 0 3,998,000
----------- -----------
Net cash (used in) provided by
investing activities (218,000) 3,609,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt (60,000) (57,000)
Purchase of treasury shares 0 (123,000)
----------- -----------
Net cash used in financing activities (60,000) (180,000)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 232,000 (96,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,572,000 (4,160,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,121,000 7,544,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,693,000 $ 3,384,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $ 129,000 $ 210,000
=========== ===========
Income taxes paid $ 8,000 $ 7,000
=========== ===========
See notes to condensed consolidated financial statements.
Hirsch International Corp. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements Information as of July 31, 2002 and
for the Three and Six Months Ended July 31, 2002
and 2001 is unaudited (in thousands)
1. Organization and Basis of Presentation
The accompanying Condensed Consolidated financial statements as of and for
the three and six month periods ended July 31, 2002 and 2001 include the
accounts of Hirsch International Corp.("Hirsch"), HAPL Leasing Co., Inc.
("HAPL"), Pulse Microsystems Ltd. ("Pulse"), Tajima USA, Inc. ("TUI"), Hometown
Threads, LLC ("Hometown"), and Hirsch Business Concepts, LLC
("HBC")(collectively, the "Company").
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments, consisting of
normal accruals, necessary to present fairly the results of operations for each
of the three and six month periods ended July 31, 2002 and 2001, the financial
position at July 31, 2002 and cash flows for the six month periods ended July
31, 2002 and 2001, respectively. Such adjustments consisted only of normal
recurring items. The condensed consolidated financial statements and notes
thereto should be read in conjunction with the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2002 as filed with the Securities and
Exchange Commission.
The interim financial results are not necessarily indicative of the results
to be expected for the full year. Certain amounts from prior periods have been
reclassified to conform to the current period's presentation.
2. Inventories
July 31, 2002 January 31, 2002
------------- ----------------
New Machines $ 5,116 $11,398
Used Machines 931 935
Parts 2,567 2,516
------- -------
8,614 14,849
Less: Reserve for slow moving inventory 1,947 2,185
------- -------
Inventories, net $ 6,667 $12,664
======= =======
3. Plan of Restructuring
In the fourth quarter of the year ended January 31, 2002, the Company
initiated a restructuring plan in connection with its continuing operations. The
plan was designed to meet the changing needs of the Company's customers and to
reduce its cost structure and improve efficiency. The restructuring initiatives
involved the consolidation of the parts and supplies operations with existing
Hirsch operations, providing for the downsizing of three of its existing sales
offices and reducing its overall administrative personnel. The reduction in
personnel represented approximately 25% of its workforce or 56 people.
The following table shows amounts paid against the restructuring accrual
included in accounts payable and accrued expenses during the six months ended
July 31, 2002.
Balance at Payments Balance at
January 31, 2002 July 31, 2002
--------------------- ---------------- ------------------
Severance costs...................... $ 479 $(295) $184
Facility closing costs............... 1,975 (345) 1,630
Other professional and consulting ... 10 (9) 1
--------------------- ---------------- ------------------
$ 2,464 $(649) $ 1,815
--------------------- ---------------- ------------------
During the six months ended July 31, 2002, 23 employees received severance
and 6 were owed severance at July 31, 2002. The severance payable is expected to
be paid by January 31, 2003.
4. Discontinued Operations
In the fourth quarter of Fiscal 2002, the Company determined that its HAPL
subsidiary was not strategic to the Company's ongoing objectives and
discontinued its operations. Management intends to sell/liquidate all the net
assets by January 31, 2003.
Summary operating results of the discontinued operations are as follows:
For the six months For the three months
ended July 31, ended July 31,
2002 2001 2002 2001
---- ---- ---- ----
Revenue ................................... 901 1,681 385 1,270
Gross profit............................... 253 397 115 435
(Loss)Income from discontinued Operations.. (4,000) 235 (28)
The operating loss in the six months ended July 31, 2002 includes an
additional $4.0 million increase in the provision for possible losses related to
the MLPR (Minimum Lease Payments Receivable). The provision was to provide for
the probable loss on the sale/liquidation of the remaining portfolio.
Assets and Liabilities of discontinued operations are as follows:
July 31, 2002 January 31, 2002
------------- ----------------
Assets:
MLPR and Residuals................... $ 13,196 $11,519
Property, Plant & Equipment.......... 90 260
Inventory............................ 74 214
Prepaid Taxes........................ 27 40
Other Assets......................... 33 0
---------------------- ---------------------
Total Assets........................... $ 13,420 $ 12,033
---------------------- ---------------------
Liabilities:
Accounts Payable & Accruals.......... $ 11,714 $ 8,159
Customer Deposits Payable............ 48 312
Long Term Debt....................... 35 55
Income Taxes Payable................. 87 87
Total Liabilities...................... $ 11,884 $ 8,613
---------------------- ---------------------
Net Assets Of Discontinued Operations.. $ 1,536 $3,420
---------------------- ---------------------
5. Contingent Liabilities
CIT Leasing had demanded the Company repurchase the remaining UNL (Ultimate
Net Loss) lease portfolio, which the Company estimates to be approximately $12.3
million at July 31, 2002. The Company and CIT entered into a standstill
agreement pursuant to which CIT agreed to refrain from requiring the Company to
repurchase the remaining UNL portfolio until October 11, 2002 at which time the
Company may be required to repurchase the remaining portfolio or enter into a
new agreement with CIT Leasing. On September 11, 2002, CIT extended the
effectiveness of the standstill agreement until January 11, 2003.
The demand by CIT triggered a technical default in the Revolving Credit and
Security Agreement (the "Agreement") with PNC Bank. The Bank has agreed to waive
the default and reduced the Company's credit facility to $4 million. The Company
currently has $1.5 million in open letters of credit for equipment that has not
been received and a $750,000 letter of credit to Brandywine Realty Services for
the security deposit under the lease for its corporate headquarters at 200
Wireless Blvd. The Company estimates that the $4 million facility will provide
sufficient working capital through the end of the Agreement.
6. Subsequent Events
On August 14, 2002 the Company was notified by NASDAQ that since it
satisfied initial listing requirements for the The Nasdaq SmallCap Market under
Marketplace Rule 4310(c)(2)(A) it has therefore been provided an additional 180
calendar days to regain compliance for Rule 4450 (A)(5) which requires that the
Company maintain a $1.00 minimum bid price for 10 consecutive days.
On September 3, 2002, the Company signed a proposal letter from Congress
Financial Corporation to provide the Company with a $12 million Revolving Credit
Facility to provide the Company with ongoing working capital. The Revolving
Credit Facility will be based upon lending formulas on the Company's accounts
receivable and inventory. The Company and Congress Financial Corporation are
currently negotiating the definite agreement relating to this Revolving Credit
Facility. The Company's credit facility with PNC bank expires on September 30,
2002.
On September 11, 2002, the Company signed an agreement with PNC Bank to
extend the expiration date of the Revolving Credit and Security Agreement from
September 30, 2002 to October 31, 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
which involve risks and uncertainties. When used herein, the words "anticipate",
"believe", "estimate" and "expect" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in or implied by these
forward-looking statements. Factors that could cause or contribute to such
differences should be read in conjunction with, and is qualified in its entirety
by, the Company's Condensed Consolidated Financial Statements, including the
Notes thereto. Historical results are not necessarily indicative of trends in
operating results for any future period. As used herein, "fiscal year" and
"fiscal" refers to the applicable fiscal year ending January 31 of the
applicable calendar year.
Results of Operations for the three and six months ended July 31, 2002 as
compared to the three and six months ended July 31, 2001.
Net sales. Net sales for the three months ended July 31, 2002 were $13.8
million, an increase of $.4 million, or 2.9%, compared to $13.4 million for the
three months ended July 31, 2001, and $27.5 million for the six months ended
July 31, 2002, a decrease of $.8 million or 2.8%, compared to $28.3 million for
the six months ended July 31, 2001. The Company believes that the reduction in
the sales level for the six months ended July 31, 2002 is attributable to a
decrease in overall demand for new embroidery machines.
Cost of sales. For the three months ended July 31, 2002, cost of sales
declined $.2 million, or 2.7%, to $8.6 million from $8.8 million for the three
months ended July 31, 2001, and for the six months ended July 31, 2002 decreased
$.9 million, or 5.1%, to $16.9 million from $17.8 million for the six months
ended July 31, 2001. The fluctuation of the dollar against the yen has
historically had a minimal effect on Tajima equipment gross margins since
currency fluctuations are generally reflected in pricing adjustments in order to
maintain consistent gross margins on machine revenues. The Company's gross
margin increased slightly to 38.6% for the six months ended July 31, 2002 as
compared to 37.0% the six months ended July 31, 2001.
Operating Expenses. For the three months ended July 31, 2002, operating
expenses declined by $2.3 million, or 30.7%, to $5.3 million from $7.6 million
for the three months ended July 31, 2001 and for the six months ended July 31,
2002, declined by $4.3 million, or 28.4%, to $10.9 million from $15.2 million
for the six months ended July 31, 2001. The reduction is attributed to the
restructuring plan that the Company implemented in the 4th quarter of the last
fiscal year to reduce its overall operating expenses.
Interest Expense. For the three months ended July 31, 2002, interest
expense increased $4,000, or 6.2%, to $69,000 from $65,000 for the three months
ended July 31, 2001 and for the six months ended July 31, 2002 increased
$18,000, or 16.2%, to $129,000 from $111,000 for the six months ended July 31,
2001. Interest expense is primarily associated with the sale/leaseback
transaction of the Corporate headquarters.
Other Income. For the three months ended July 31, 2002, other income
decreased $189,000, or 93.1%, to $14,000 from $203,000 for the three months
ended July 31, 2001 and for the six months ended July 31, 2002 decreased
$618,000 or 98.7%, to $8,000 from $626,000 for the six months ended July 31,
2001. The change in other expense is due to the unfavorable currency
translations for the yen compared to favorable currency translations for the
three months ended July 31, 2001.
Income tax provision (benefit). The income tax provision (benefit)
represents taxes due on income earned by the Pulse and TUI subsidiaries compared
to last year's benefit for carry-back losses.
Loss from Continuing Operations. The loss from Continuing Operations for
the three months ended July 31, 2002 was $.4 million, a decrease of $2.4, or
84.5%, from $2.8 million for the three months ended July 31, 2001 and for the
six months ended July 31, 2002 was $0.9 million, a decrease of $3.1, or 76.3%,
from $4.0 million for the six months ended July 31, 2001.
Loss from Discontinued Operations. Management estimated in the quarter
ended April 30, 2002 that there will be additional losses of approximately $4
million in repurchasing and disposing of the remaining UNL lease portfolio as
well as its existing lease portfolio. Accordingly, during the three months ended
April 30, 2002 the provision for possible losses was increased by $4 million.
Net Loss. The net loss for the three months ended July 31, 2002 was $.4
million, a decrease of $2.4 million, or 84.5%, from $2.8 million for the three
months ended July 31, 2001 and the net loss for the six months ended July 31,
2002 was $5.0 million, a an increase of $1.2 million, or 30.8%, from $3.8
million for the six months ended July 31, 2001. The loss on discontinued
operations increased $4,235,000 from a profit of $235,000 to a loss of
$4,000,000 accounting for the entire increase in net loss. The tax benefit of
these losses has been reserved by a valuation allowance since the Company cannot
determine the future utilization of these losses.
Liquidity and Capital Resources
Operating Activities and Cash Flows
The Company's working capital was $17.3 at July 31, 2002, a decrease of
$4.2 million, or 19.0%, from $21.5 million at January 31, 2002. The decline was
due to the change in net assets of discontinued operations which decreased $5.5
million as a result of the additional reserves necessary to repurchase and
dispose of the UNL portfolio and its own lease portfolio.
During the six months ended July 31, 2002, the Company's cash and cash
equivalents increased by $5.6 million to $8.7 million. Net cash of $5.6 million
was provided by the Company's operating activities.
As of July 31, 2002 the Company did not own any foreign currency futures
contracts.
Revolving Credit Facility and Borrowings
The Company has a Revolving Credit and Security Agreement (the "Agreement")
with PNC Bank, which expires September 30, 2002. The Agreement provided for a
commitment of $20.0 million for Hirsch and all wholly-owned subsidiaries. The
Agreement is used for working capital loans, letters of credit and deferred
payment letters of credit and bears interest as defined in the Agreement. The
terms of the Agreement, as amended, restrict additional borrowings by the
Company and require the Company to maintain an interest coverage ratio, as
defined therein. There were no outstanding working capital borrowings against
the Agreement as of July 31, 2002. The Agreement also supports trade acceptances
payable of approximately $1.5 million as of that date.
The demand by CIT (see note 5 to the Condensed Consolidated Financial
Statements) triggered a technical default in the Revolving Credit and Security
Agreement (the "Agreement") with PNC Bank as of July 31, 2002. The Bank has
agreed to waive the default and reduced the Company's credit facility to $4
million. The Company currently has $1.5 million in open letters of credit for
equipment that has not been received and a $750,000 letter of credit to
Brandywine Realty Services for the security deposit on its corporate
headquarters at 200 Wireless Blvd. The Company estimates that the $4 million
facility will provide sufficient working capital through its termination.
On September 11, 2002, the Company signed an agreement with PNC Bank to
extend the expiration date of the Revolving Credit and Security Agreement from
September 30, 2002 to October 31, 2002.
Future Capital Requirements
The Company believes that its existing cash and funds generated from
operations, together with its revolving credit facility with PNC Bank, will be
sufficient to meet its working capital and capital expenditure requirements for
the foreseeable future.
Backlog and Inventory
The ability of the Company to fill orders quickly is an important part of
its customer service strategy. The embroidery machines held in inventory by the
Company are generally shipped within a week from the date the customer's orders
are received, and as a result, backlog is not meaningful as an indicator of
future sales.
Inflation
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections" (SFAS NO.
145"). SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gain and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The adoption of SFAS No. 145 is not expected to have a material
impact on the financial positions or results of operation of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact, if any, of SFAS NO. 146 on its consolidated financial
statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company has a formal policy that
prohibits the use of currency derivatives or other financial instruments for
trading or speculative purposes. The policy permits the use of financial
instruments to manage and reduce the impact of changes in foreign currency
exchange rates that may arise in the normal course of the Company's business.
Currently, the Company does not use interest rate derivatives.
The Company may enter into forward foreign exchange contracts principally
to hedge the currency fluctuations in transactions denominated in foreign
currencies, thereby limiting the Company's risk that would otherwise result from
changes in exchange rates.
Any Company debt, if utilized, is U.S. dollar denominated and floating
rate-based. At quarter-end, there was no usage of the PNC revolving credit
facility. If the Company had utilized its credit facility, it would have
exposure to rising and falling rates, and an increase in such rates would have
an adverse impact on net pre-tax expenses. The Company does not use interest
rate derivatives to protect its exposure to interest rate market movements.
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2002 Annual Meeting of Stockholders was held July 9, 2002. At
the meeting, the Company's stockholders voted upon (1) the election of
directors; (2) the amendment of the Company's Stock Option Plan to provide for
an increase in the number of stock options the Company is authorized to issue
thereunder; (3) the amendment of the Company's 1994 Non-Employee Director Stock
Option Plan to (a) increase the initial grant of stock options given by newly
elected non-employee directors from 7,500 to 10,000 stock options, and (b)
increase the automatic annual grant of stock options given to non-employee
directors from 2,500 to 10,000; and (4) the approval of BDO Seidman, LLP as the
Company's independent auditors for the fiscal year ended January 31, 2003. The
following is a tabulation of the votes:
(1) Election of Directors
For Against
Marvin Broitman (Class A) 4,753,888 841,253
Ronald Krasnitz (Class A) 4,753,888 841,253
Mary Ann Domuracki (Class A) 4,753,888 841,253
Henry Arnberg (Class B) 2,268,139 0
Paul Levine (Class B) 2,268,139 0
Tas Tsonis (Class B) 2,268,139 0
Herbert M. Gardner (Class B) 2,268,139 0
(2) Amendment of 1993 Stock Option Plan
For Against Abstain
2,882,582 1,882,528 59,165
(3) Amendment of 1994 Non-Employee Director Stock Option Plan
For Against Abstain
6,689,931 1,151,566 21,783
(4) Approval of BDO Seidman, LLP as the Company's Independent Auditors
For Against Abstain
7,574,838 244,857 43,585
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*3.1 Restated Certificate of Incorporation of the Registrant
**3.2 Amended and Restated By-laws of the Registrant
***4.1 Specimen of Class A Common Stock Certificate
***4.2 Specimen of Class B Common Stock Certificate
99.1 Certification of Chief Executive Officer pursuant
to Section 906 of Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant
to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8K
The Registrant filed a report on Form 8K with the Commission on May 15,
2002 regarding the Company's filing of its application to transfer the listing
of its Class A Common Stock from the Nasdaq National Market to the Nasdaq
SmallCap Market.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIRSCH INTERNATIONAL CORP.
Registrant
By: /s/Henry Arnberg
------------------------------
Henry Arnberg, Chairman and
Chief Executive Officer
By: /s/Beverly Eichel
------------------------------
Beverly Eichel, Vice President-Finance
and Chief Financial Officer
Dated: September 13, 2002
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Henry Arnberg, the Chairman and Chief Executive Officer of Hirsch
International Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hirsch International
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 13, 2002
/s/ Henry Arnberg
------------------
Chairman and Chief Executive Officer
I, Beverly Eichel, the Vice President - Finance and Chief Financial Officer of
Hirsch International Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hirsch International
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 13, 2002
/s/ Beverly Eichel
------------------
Vice President - Finance and
Chief Financial Officer